Perquisites - Value of Any Specified Security / Sweat Equity Shares allotted or Transferred to An Employee or Former Employee Rule 3(8) - Income Tax - Ready Reckoner - Income Tax

The value of any specified security or sweat equity shares allotted or transferred, whether directly or indirectly, by the employer or former employer, Free of cost or at concessional rate to the assessee. Meaning of relevant terms 1. The security or shares involved are specified security or sweat equity shares . For this purpose specified security means securities as defined in section 2(h) of the Security Contracts ((Regulation )Act and where employees stock option has been granted under any plan or scheme therefor , includes the securities offered under such plan or scheme . Section 2(h) of the Securities Contracts (Regulation ) Act defines securities to including the following a. shares ,scrips stock bonds debenture ,debenture stock or other marketable securities of a like in nature in or in any incorporated company or other body corporate ; b . derivative ; c. security receipt as defined in clause (zg) of a section 2 of the securitisation and reconstruction of financial assets and enforcement of Security Interest Act ,2002; d. units or any instrument issued to the investors under mutual fund scheme ; e units or any other instrument issued by any collective investment scheme to the investor in such a schemes. f. Government securities ; g. such other instrument as may be declared by the Central Government to be the securities ; and h. rights or interest in securities . Sweat equity shares means equity shares issued by a company to its employee or its directors at a discount or for the consideration other than cash for providing know how or making available rights in the nature of intellectual property rights or value additions , by whatever name called . 2. Specified Security or sweat equity shares are allotted or transferred on or after 1-04-2009 . 3. Specified security or sweat equity shares are allotted by the employer or former employer to the employee . 4. Specified Securities or shares are transferred to the employee either free of cost or at a concessional rate . Consequences when the above conditions are satisfied - If the above conditions are satisfied, perquisite will be taxable in the hands of employee in the assessment year relevant to the previous year in which shares or securities are allotted or transferred to the employee. For this purpose, one has to find out fair market value of shares or securities according to the prescribed method. Fair market value of shares or securities will be calculated on the date on which the employee exercises the option. Amount actually paid or recovered for the employee in respect of such shares or securities shall be deducted. VALUATION OF SPECIFIED SECURITY OR SWEAT EQUITY SHARES - AS PER RULE 3(8) Situations When the share is listed on one stock exchange When the share is listing more than stock exchange Quoted Shares In a case where, on the date of exercise of the option, the share in the company is listed on a recognized stock exchange in India, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange Where, however, on the date of exercise of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share. Where on the date of exercise of the option, there is no trading in the share on any recognized stock exchange in India; (a) the fair market value shall be the closing price of the share on any recognised stock exchange on a date closest to the date of exercise of the option and immediately preceding such date. (b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closet to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognised stock exchange. For this purpose closing price of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange. Where the stock exchange quotes both buy and sell prices, the closing price shall be the sell price of the last settlement. Opening price of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange. Where the stock exchange quotes both buy and sell prices, the opening price shall be the sell price of the first settlement. Unquoted shares In a case where, on the date of exercise of the option, the share in the company is not listed on a recognized stock exchange in India, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date. Specified date means the date of exercise of the option; or any date earlier than the date of exercise of the option, not being a date which is more than 180 days earlier than the date of exercise of the option.